When a lot of people get involved with forex what attracts them originally is leverage and knowing you can leverage other peoples money to make more money on your own faster. Sounds amazing doesn’t it but it is also a double-edged sword that can slice you up badly. These are the things we will cover.
What leverage should I use when starting out in Forex? When first starting out in demo go ahead and start with at least 1:200 leverage so you can really get your VOT (Volume of Trades) in. This way you can focus on multiple trades in one strategy or multiple trades with different strategies until you figure out one which best fits.
When you are first starting out it is generally a good idea to hit the ground running taking as many trades as you can so you can learn what not to do. Test a strategy as it is, do not try to win your way. Either you win with the strategy or you lose. The higher the leverage the more trades you can take.
Once you start narrowing down what strategy you want to use long-term then it may be time to start dialing it down and get to trying to win more trades than you lose. So your leverage won’t be a key factor here if you are at least 100:1. It may also be a good idea to start up another demo account with about the size of the account you will be using when you go live.
For instance, most brokers will just give you a pick of like 1,000 or 5,000 dollar accounts but you can usually also open up sub-accounts underneath that with a particular amount. Something cool to do is to start with like 100 to 1,000 and just try to double it using a conservative risk something like 1-5% (4-5% is aggressive).
Once you have doubled your account it is probably likely time to go live. My advice would be with your first live account to only risk 1% until you are getting the win percentage you had when demoing. This could take time based on where your mindset is.
On a live account you should honestly never have to worry about leverage if you are 1:100 or 1:200. That should give you plenty of trades anything over this means you are over leveraging your account in other words over risking and setting yourself up for a huge loss.
The same thing goes with trading certain currencies. If you are trading GBPJPY and GBPNZD probably not a good idea to trade something like GBPUSD or EURGBP. I say this when you are a beginning trader because if something goes south on GBP with news and you are risking 3% + 3% + 3% that is 9% at one time. You can lose this all based on one currency. As you become more advanced these are called basket trades where you can get more ROI per the movement based on multiple pairs moving similarily. I honestly have dabbled a bit into this but I got away from it too much emotion for me at this time.
What Does Leverage In Forex Trading Mean?
In case I was getting ahead of myself when you jumped into this article. Leverage simply means you have control over a much bigger dollar amount during a trade then is relative to your deposit. 1:100 means ever $1 you have in your account is worth $100. If you started out with a $1,000 account balance you can actually trade with $100,000 in your control. Sounds great but it is a double-edged sword because you can lose your money just as quick as you profit from it.
For me, I just look at risk percentage and I don’t normally have multiple trades running at a time 2 tops with total risk around 6% b/w those two trades. But I also trade most of the time with a 10 pip stop loss and usually get out at 5 pips manually negative. I know that sounds strange but read my quick write up on trading in the new paradigm.
Forex Leverage For Beginners
- When first in demo use whatever you want somewhere around 1:200+ so you can get your VOT in.
- Once you settle down a bit and get more comfortable dial it down a bit and look at things as risk %. It will simplify your leverage and margin concerns.
- When you go live keep leverage to around 1:100-200 max. You shouldn’t need more then this when you first start trading.
- Get your win percentage up to where it needs to be before increasing your lot size and risk percentage
Forex Leverage Example
- 1:100 = $100 USD for every dollar
- 1:200 = $200 USD for every dollar
- 1:300 = $300 USD for every dollar
- 1:400 = $400 USD for every dollar
- 1:500 = $500 USD for every dollar
Forex Leverage Calculator
Related Questions (From Our Facebook Group)
What Is The Best Leverage To Use In Forex?
This depends on the individual and whether you are in live or demo. If you are brand new to Forex and just started demoing look at 1:200+ anywhere up to 1:500. This will help you get your volume of trades in quickly so you can learn what not to do hopefully.
As you get better and used to trading take this back to 1:100-200 max. Then when you go live same thing 1:100-200 max. This way you do not over leverage your account.
But this could be different for different types of traders I don’t ever take more then 2 trades on one currency. For example trading GBPJPY and GBPNZD trades together I would not jump into a GBPUSD trade no matter how good the trade looks. That may change as I get better and more professional about my mindset.
How Does Leverage Affect Forex Trading?
Leverage makes it so you can make a lot more money then most markets but it also means you can lose a lot more money then most markets. This is why I don’t really look at leverage I look at risk percentage, risk:reward ratio, and getting the most per pip money I can. This mostly boils down to how big of a stop loss you are going to use? Want to learn more on stop loss as a profit regulator check out our page on the New Paradigm of trading.
Do You Have To Use Leverage In Forex?
Most are drawn to forex because of the amazing leverage you can get access to. If this is what has brought you to this market be very careful you can lose A LOT! of money using leverage. So trading without leverage is fine I wouldn’t suggest it when demoing until you are about to go live. If you have been trading successfully for years you know what you are doing and probably don’t need leverage. If you don’t want to use leverage using a U.S. regulated broker may be your best option with trading. Take a look and do your research. I personally use 1:100 to 1:200 leverage but I don’t ever come close to that on a daily basis.